By John F. Wasik
Dec. 29 You won't get too many arguments at holiday parties if you say that 2011 has been one of the most challenging years for investors.
With the European crisis unresolved and major bi-polar dysfunction in Washington, it's never been more difficult to plan ahead. Yet there are always core wealth management concerns that you need to address.
Here are some that I think are key.
DO YOU TRUST YOUR ADVISER?
Under pressure from the brokerage and insurance industry, the Securities and Exchange Commission is reconsidering a proposal to make all advisers fiduciaries.
A new standard will be released next year, although it may be highly diluted. In the interim, seek out an adviser such as a fee-only certified financial planner, certified public accountant or chartered financial analyst who acts as a fiduciary.
That means they have to put your interests above their own. They should not make a commission on what they recommend, and they should put your needs first. Read their ADV Forms (Part II) to see how they make their money. They should clearly disclose any conflicts.
HAVE YOU PREPARED FOR "SYSTEMIC" RISK?
What happens to your portfolio if the European debt crisis isn't solved? What happens if a worldwide slowdown affects countries like China, Brazil, India and most of the developing world? Have you prepared for that?
The good news is that there are numerous ways you can work with your adviser to hedge your most vulnerable positions.
You can "short" any index, whether it's a basket of U.S. Treasury bonds - if you think rates are climbing - or specific stock sectors. You can even find funds that offer triple the inverse return of an index.
Of course, I don't recommend these funds unless you understand their risks. You could lose a lot of money if you don't know what you're doing. The important task here is to identify where your greatest exposures lie and hedge against them.
Do you have a lot of your employer's stock? You may want to protect yourself with options. Do you have a huge position in bond funds? Then inverse Treasury ETFs or Treasury Inflation Protected securities might help.
FINE-TUNING THAT ESTATE PLAN
At the end of 2012, the $5 million exemption (per person) on estate and gift taxes could disappear - if Congress does nothing.
You need to huddle with your estate planner to see if you need to reduce the size of your estate for tax purposes. Don't wait for Congress to act. Work on a long-term plan that includes charitable intentions.
EXAMINING TAX LIABILITIES
Along with the estate and gift tax exemptions, the low Bush-era income, dividend and capital-gains rates are set to expire at the end of 2012. While I doubt that Congress will enact any major tax reform next year, you need to be prepared if the lowest tax rates in a generation rise. Consult with your tax professional to see what kind of deductions you should take in 2012. You also might want to push more income into 2012 - if rates indeed rise in 2013.
IS YOUR FINANCIAL HOUSE IN ORDER?
This is something you should do every year. What's your debt/income ratio? Are you saving enough for retirement and college? Are your out-of-pocket medical expenses rising? Have you put enough in an emergency savings fund? Do you have enough health, life, homeowner's and disability insurance? All of these items need to be reviewed and updated this time of year.
Aren't you glad I gave you all these additional things to worry about when you were hoping to relax as the new year dawns?
Fortunately you can delegate most of these items to trusted advisers. And if you have reason not to trust them, you need to do more than make a New Year's resolution; you need to make some changes.
The writer is a Reuters columnist. The views expressed are his own.